Things you need to know.
Again – I say thank you for letting me be part of your life….it is a journey and one that I am grateful to be on…. May the new year bless you with the love of family & friends. I wish you peace, health, and most of all happiness in the new year.
- It’s been one helluva year!
- Investors celebrate as AI changes the world and rewards investors.
- Geo-political issues create short term chaos, but long-term opportunity.
- Create your plan and then execute it.
- Try the Champagne Chicken
“And now, the end is near, and so we face the final curtain, My friends I’ll make it clear, I’ll state the case of which I’m certain….” – My Way –
Ok – look – here it is how it played out – Stocks continue to rally, and will continue to rally, as investors believe that the FED will not only cut rates once or twice – but now by more than five times next year……Period. The Magnificent 7 will continue to lead as AI changes the world…. We will be looking at a 4% Fed Funds rates, and a 10 yr. treasury that would be closer to 3.25% rather than 5.25%….And we will avoid any hint of a full blown recession, we will glide into the landing vs. crash into it all while global inflation just fades away as if it never happened….S&P earnings will grow by double digits and the forward guidance by the C Suite will be nothing but bullish…….
The Presidential election won’t cause any disruptions at all, there won’t be any accusations of voter fraud or a stolen election and we can all expect massive tax cuts….…….Vlad will make nice with Volodymyr, Hamas and the Hootie’s will cease to exist and Iran will play nice in the sandbox……The Red Sea will part (once again) and the global shipping channel – that is key to worldwide trade – will return to normal and traffic will flow freely thru the Suez Canal. Oil will plunge to $50/barrel and the Saudi’s will have nothing to say about it. Joey will replace the 200+ million barrels of oil to the SPR, and the border will REMAIN closed. China will give up on Taiwan and Chubby (Kim Jong On) will stop threatening South Korea. Stocks will continue to surge and never go down again……
Yeah – that’s how it’s gonna happen…. Or at least that is how it appears it’s gonna happen…. Ok Boys and Girls – brace yourself – that is not happening….but it is good while it lasted.
Now none of this means that it’s all going to implode, it just means come back to reality….
2023 turned out to be an incredible year…. the Nasdaq gained 45%, the S&P up 25%, the Transports gained 20%, the Russell (smids) rose by 17%, the Dow added 14% while the S&P equal weight was up 12%.
The Value trade – SPYV was up 21% while the Growth trade – SPYG was up 29%. The best performing sector in the S&P – Tech – XLK +55%, Communications – XLC + 53%, Consumer Discretionary – XLY +35%, Industrials – XLI +17%, Basic Materials – XLB and Financials – XLF both up 11%, Real Estate – XLRE up 9%, Healthcare flat, while Consumer Staples – XLP lost 3%, Energy gave up 4% and Utilities came in in last place – losing 10%.
Bonds rallied hard and while the year end performance of less than +1% appears unimpressive – it was only 3 months ago when both the TLT and TLH were kissing BEAR mkt territory (down 20%). Yields which spiked higher for much of the year – have all retreated as bonds rallied…. The recent decline in the treasury market doing much of ‘easing’ for the FED…..
AI was the theme this year and will be the theme next year and the years after……anything that connected a company to AI was seen as cutting edge….and was rewarded by investors….Disruptive TECH – ARKK – which was a DOG in 2022 down some 80+% was one of this year’s darlings…gaining 75% thru today….Semi’s driven by the same craze rose 67%, Cybersecurity – CIBR up 40%, and Automation & Robotics – BOTZ – added 40% as well. Individual names becoming household words…. NVDA + 240%, AI + 170% – just two that captured everyone’s attention….and not be left behind – Bitcoin emerged from it’s long winter’s nap – rising 160%….while Ethereum gained 100%. It was an exciting year for those in the market and for those who chose to get out – they missed a big opportunity….but they did move money into the treasury market and earned better than 5% on their money for much of the year , removing risk and allowing them to sleep at night….– something they have not been able to do for 16 years….It was an amazing year….and one that caught so many off guard…
So – what’s ahead for 2024….? That’s the question…..and there are so many answers….or perspectives….on the rate cut front – be careful what you wish for – 6 or 7 rate cuts would happen only if the economy circles the drain…..if the macro data completely implodes, Unemployment surges to 5%, and inflation turns to actual deflation……Housing prices collapse, commercial real estate loans blow up, cities remain empty as workers push back on the ‘return to office’ narrative……Defaults continue to rise as unemployment rises and the data weakens….If none of that happens – then why again would the FED cut rates 6 times? Earnings will grow – but I’m not sure they will grow by double digits, like usual – estimates are high going into the new year and get adjusted as winter turns to spring and spring to summer and summer to fall…..But – there will always be opportunities…and while much of that ‘geo-political’ stuff will dominate the headlines – don’t expect it to price stocks in the long term…..because they don’t….I mean just look at what has happened in the last quarter….the world has become more unsettled – yet global markets and stocks continued to make new highs…..So, if there is one lesson to be learned – do not make investment decisions based on what the Hootie’s are doing….
I suspect that we will have another good year for stocks….but do not expect another 40% gain…..a retreat to the more normal 10% – 12% would not be a surprise. Calls for S&P 5400 are not uncommon….(that’a 14% rise) but nor are calls for S&P 4200 (which is a 10% decline)….remember – it is an election year (stocks rise in an election year) and not only in the US but around the world….central banks will remain accommodative…..just look at how the narrative has changed here in the US – we went from higher for longer to cutting rates 6 or 7 times in the next 12 months and that was just in the past 4 weeks…..….cuts that will go right thru the election cycle – something that should not happen, but guess what? It’s a new world….
Which is why I remind you – a long term investment account is just that – focus on the long term, identify the trends, put money to work, balance it out with stability to protect you on the downside. Talk to your advisor, review your plan or if you don’t have one – make a plan….the sooner you start the better off you’ll be…
US futures are up, and we are just points away from the S&P making a new intraday high if not a closing high….at 6:45 am – Dow futures are up 15 pts, the S&P up 5, the Nasdaq up 18 and the Russell is ahead by 1.
There is no eco data and even if there was – it wouldn’t matter….I suspect that the algo’s will try to push the S&P to 4818 – the intraday high on January 4th, 2022 (vs. the closing high of 4793)….that’s a 35 pt move from here….Can we do it? Sure – but I don’t’ think it happens…I think they try to pierce 4800, but that’s where it ends…..just not sure it’s got the juice…..
Remember what I said yesterday……. anyone that wants to lock in these big gains – will wait until early January….Why? Because they will have 16 months to plan for how to reduce their tax liability….If they sell stock today – they will owe those taxes in 4 months….which is why we have seen stocks rally – Investors do not want to really sell stocks if they don’t have too, but once January comes, that story changes…
And don’t forget – earnings will start in 2 weeks….and the EPS bar is low – so expect to hear all kinds of ‘beats’ but pay attention to the guidance…..recall what FDX, GIS and NKE said last week – their guidance was weak…..…. Earnings start ‘officially’ on the 12th…..Watch what the big banks do – they are the first to report- with their ‘loan loss reserve accounts’ – remember those are the accounts where the banks put a lot of money when they expect to see defaults rise…..last qtr. they loaded them up, what will they announce this qtr.? Are they still adding to those accounts and if they are – what does THAT say about what they think the future is?
The latest data is:
Earnings are expected to grow by 2.4% this quarter…which is down from the 4.9% rate seen in the 3rd quarter – and revised ‘lower’ from the September estimates that had them growing at 8.1%. Forward 12-month P/E for the S&P is now 19.5 x’s – which beats the 5 yr. avg of 18.8 x’s and the 10 yr. avg of 17.6 x’s…. but with lower rates expected – then we can expect the multiples to expand…. which will send stocks higher….
Consumer Discretionary is expected to be the best performing sector of the 11 S&P sectors – with earning growth rate of 43.9%, while Energy is expected to be the worst sector with earnings declining by 29% .
Oil appears to be ending the year at $72 ish….a far cry from the $100 price target that so many street analysts had predicted…..the US is now producing oil at record rates – which is a positive (Imo)…..and that will keep a lid on oil – even as demand remains healthy….the middle east conflict both in Israel and now the Red Sea did not create the hysteria that it was expected to do….and I think that is because we are returning to becoming the global supplier – OPEC + is losing credibility and control…..
Gold will end the year at about $2,075 – up 9% ytd…..and with the ongoing talk of rate cuts – I expect gold to continue to move higher….
European markets are going out with a bang…. for the year – The FTSE is up 4%, the CAC 40 + 17%, the DAX + 21%, Eurostoxx + 20%, Spain up 23% while Italy takes home the prize – rising by 29%! And that speaks to having some international exposure in your portfolio….because there are opportunities around the world….I for one though, do not invest in China – no need to….they don’t play by the rules, they change the rules at a moments notice leaving you as the investor holding the bag…..Look elsewhere for opportunities across Asia
The S&P closed at 4783 up 2 pts…. Whatever happens today is a non-event….it is what it is…. You are not going to change this year’s performance today….
The new year is only hours away….the slate gets wiped clean and everyone starts from zero again…..I expect that we could see some January selling….as investors want to sell stocks to lock in some of these incredible gains but want to put off paying those taxes for another 16 months.
Take good care,
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
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It’s new year’s – Break out the Champagne……and make.
Chicken Breasts in Champagne Cream
This is a classic dish, easy to prepare, presents beautifully on the plate on a bed of sautéed spinach will leave your guests wondering – How you did it.
Start with skinless pounded chicken breasts – dredge in seasoned flour – (S&P). After you have dusted all the breasts – set aside.
On medium heat melt 3/4 stick of butter and a splash of olive oil in a large sauté pan. When almost sizzling – yet not burning…. add the breasts and sauté for about 4 / 5 mins. At this point – turn the breasts over – add about 1 1/2 cups of champagne and sauté for about 10 mins more.
Next add 3/4 cup of heavy cream (or lite cream if you must), chopped Italian parsley and a bit of rosemary powder and continue cooking until it thickens up.
While this is cooking – sauté some fresh spinach in garlic and oil and then make a bed on each plate. When the chicken is done – transfer the breasts to individual plates and top with the champagne cream sauce.
A nice mixed green salad garnished with cherry tomatoes; red onion & cucumber dressed with a champagne vinaigrette finishes off this meal. Choose a lighter bodied red or even a chilled white to complete the presentation.
Buon Appetito.
